The Gift of a Roth

I would like to fund a Roth IRA for my 25-year-old daughter. She is a third-grade teacher and already saving for retirement. Could you suggest some appropriate funds? Would she have to pay taxes on this money?

Helping finance your daughter’s retirement is a great idea. Even if she has a 403(b) from her job as a teacher, adding a Roth is a good way to diversify her retirement savings. Unlike funding a 403(b), contributing to a Roth doesn’t give your daughter a tax break now. But she’ll be able to withdraw the money tax-free after age 59½, and she can withdraw the contributions at any time tax-free and without penalties.

The deadline for 2009 IRA contributions is April 15, 2010. You can give her the money to contribute to the account, but she needs to meet the Roth income limits; if she’s single, her adjusted gross income must be $120,000 or less ($176,000 or less for couples) to contribute to a Roth for 2009. And you won’t face any tax consequences for the gift as long as you give her $13,000 or less for the year.

If your daughter won’t touch the money until she retires, she can afford to put all of her money into stocks. Until she has enough money to build a diversified portfolio, she should start with a global stock fund -- one that invests in both U.S. and foreign stocks. Two good choices, both with a bent toward undervalued stocks, are Oakmark Global I (symbol OAKGX) and Dodge & Cox Global (DODWX). Neither levies a sales charge. If your daughter wants to tamp down risk further, a global balanced fund -- one that owns stocks and bonds from both U.S. and foreign markets -- may be appropriate. One of the few no-load funds in this category is Fidelity Global Balanced (FGBLX).